Standing Committee B

Thursday 9 May 2002

[Mr. Nigel Beard in the Chair]

2.30 pm

The Chairman: On Tuesday, the hon. Member for South Cambridgeshire (Mr. Lansley) asked on a point of order whether it would be possible for the Committee to debate new clause 8 separately, as further issues concerning it had become apparent only after the group of amendments, in which it was included, had been debated. Having examined Hansard, I have concluded that it is reasonable for the Committee to have the opportunity to consider the new clause further. So, if Members want to debate it, they will be able to do so when we consider new clauses next Thursday.

Schedule 16

Schedule B1 to Insolvency Act 1986

Andy Burnham (Leigh): I do not want to detain the Committee, but I would like to comment on the administration process and, in particular, the provisions on the consultation of employees. The purpose of the amendment appears to be to ensure as full and detailed consultation as possible, and that all parties relevant to the administration are kept abreast of developments.

In that context, I want to take a second fully to endorse the points raised by the Trades Union Congress about this part of the Bill. The TUC strongly supports its thrust, which is to facilitate company rescue where practical and make it the main aim of administration, and says:

''Whether or not a company rescue is possible, it is essential that workers and their representatives are kept informed of developments and consulted as to their views on the possible options under consideration by the administrator. There should be an obligation on the administrator to keep the workforce and their representatives informed of developments as they unfold and to consult them before making decisions on how to proceed.''

Labour Committee members would strongly endorse that view. We know that the Bill says that the administrator should send a copy of his proposals

''to every member of the company of whose address he is aware.''

In supporting the TUC's comments, I ask the Minister whether he is satisfied that the period of 28 days gives sufficient opportunity to get those proposals to all company employees and, if possible, consult them on the steps ahead.

Mr. Jonathan Djanogly (Huntingdon): I have spoken to several insolvency practitioners, and the time limit was the one issue on which they all concurred. They feel that the 28-day period is simply unrealistic. As one of them said about the proposal,

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''Frankly, if you're dealing with a company that owns a shoe shop, it would be fine. But, if you're dealing with an Enron or Federal-Mogul''—which owns some 600 to 700 companies as part of its group—''the idea of putting this together in 28 days is simply not feasible.'' I was also told that if the Government want to follow the time-limit approach, they should relate it to the size of the administration. There could be a 28-day period for a single company or small group of companies, and an increasing amount of time as the case becomes more complicated. The Government may wish to consider something along those lines.

Mr. Mark Field (Cities of London and Westminster): For practical purposes, I imagine that the Government would wish to avoid the administrator being little more than a rubber stamp. There is a great danger that a 28-day rather than a three-month period would risk the administrator seeing the full list of proposals merely as a boilerplate document. As those of us who have worked in legal firms know, too often the first instinct is to ask, ''Is there a precedent?'' and to follow the two-page document shown on the word processing system.

There is a danger that a 28-day time frame would risk the administrator seeing what should be an important document as a perfunctory part and parcel of the process. A standard, vague, two-page document would be provided that did not go to the heart of his efforts to put things in place. The best administrators work in tandem with the key management of a company in trouble by having a recovery plan in place. I accept that it should be in the directors' hands before the administrator is appointed, as there needs to be a vision about how a company can be driven forward in future. An administrator can play an important role in that regard.

A restrictive deadline such as the one proposed would risk the process becoming a paper chase. The period of time proposed will not allow the administrator to use his commercial acumen and his experience of other administrations to make a genuine difference to the company's long-term recovery, its business assets and the future rights and opportunities of the employees.

The Minister for E-Commerce and Competitiveness (Mr. Douglas Alexander): I start with an observation: I concur with the point made by the hon. Member for Eastbourne (Mr. Waterson) in noting, with some curiosity, the description of the Government's motivation in the matter as political. In our many deliberations on strategy in the run-up to the last election, the time scale of corporate insolvency did not feature prominently. None the less, several matters relating to timing have been raised by my hon. Friend the Member for Hemel Hempstead (Mr. McWalter), and by Opposition Members. The issue is important and worthy of a serious response, which I shall endeavour to provide.

In respect of amendment No. 416, there is some nervousness in the insolvency profession about the proposed time scales, although I believe, not least in the light of hon. Members' contributions, that those concerned are unduly cautious about what is

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achievable. That touches on the point made by the hon. Member for Cities of London and Westminster (Mr. Field). The proposed time scale will not result in a pro forma exercise; it will provide the basis on which a substantive document can be produced. The view expressed may be unduly influenced by those practitioners who deal with large cases, especially given that the example cited was of either a shoe shop or Enron. However, in cases of such scale and significance as a company the size of Enron, there is provision for an application to be made to the court about the timings involved.

My officials have taken clear soundings with those practitioners who specialise in the smaller cases—

Mr. Djanogly: It is important to appreciate that each application will have significant cost implications. The cost for a large case would be about £15,000 per application, and that money would be taken away from creditors.

Mr. Alexander: We must be aware of the incentives intended to ensure that administrations are more broadly used and thus to give a degree of certainty when people go into administration and when they anticipate coming out of it. The proposed time scales probably strike the right balance. The amendment refers to the time scale in the proposal, but there is also specific provision for an extension or an application directly to the court. There is thus a balanced approach, which recognises the gradations and possibilities.

My officials have taken soundings with practitioners who specialise in the smaller cases, who think that the time scales will be more than adequate for cases at the smaller end of the market. As I said, clear exit points will be important for smaller companies for which at present costs are a potential barrier to entering administration.

Mr. Tony McWalter (Hemel Hempstead): I do not want to make my hon. Friend's life more difficult, but I give an example of a case with which I was dealing in which I thought Customs and Excise behaved very unreasonably. Although the company was small, its paperwork was not in the best order. That sometimes gives rise to the size and expectations of the operation that makes a claim on the company's assets. The company's capacity to respond might be out of kilter with that, even though it has strong claims to viability, as was the case in the example that I have given.

Mr. Alexander: I am grateful for my hon. Friend's points. Two issues arise: the conduct of Customs and Excise and the possibility of Inland Revenue involvement. I have some observations to make on Crown preference, when we come to discuss it, that will allay some of his concerns about the actions of public bodies. His second point accords with the spirit of the Bill, which is to ensure that administration will become more accessible and attractive, not least to the type of smaller firm that is conscious of the costs and paperwork involved.

The profile of cases going into administration as a result of the Bill will shift towards those that are

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smaller and more straightforward, for which the time scales will prove to be more than adequate. In response to the point made by the hon. Member for Huntingdon (Mr. Djanogly), I accept that some cases cannot be completed within those time scales. Where an extension is required, it can be obtained by consent from the company's creditors and/or from court for a further period of anything up to three months. An extension from the court can be for any period that it considers appropriate, and it will be up to the administrator to justify the period sought. There should therefore be no need for frequent applications for extensions for the consequential costs involved.

Mr. Djanogly: Returning to the shoe shop scenario, there may be 10 creditors who can be called in one morning. We are talking about a company that has 600 or 700 subsidiaries. I would challenge anyone to call round the creditors and organise consent.

Mr. Alexander: As I have endeavoured to show, we are alive to the reality that there is a spectrum of potential cases for which administration seeks to address the outcomes. Our substantive point is to provide a more accessible and streamlined approach that addresses the particular needs of smaller firms and has the flexibility necessary to accommodate some of the larger and more complex cases, about which the hon. Gentleman spoke. Even in those larger cases where, for example, the automatic three-month period of administration might not be long enough, it should often be possible for the administrator to seek an extension of sufficient length to remove the need for more than one application thereafter.

It may be of some use and give some comfort to the Committee to know that my officials have been in contact with their opposite numbers in Australia who introduced a similar system some years ago. We have re-lived some of their experiences in the protests that were raised before today's sitting about the time scales. The time scales in Australian voluntary administration procedures are even tighter than those in the Bill. Proposals have to be prepared within 21 days—not 28 days, as the Bill proposes. Similar concerns were initially raised about the time limits being too short. However, I understand that the general consensus now emerging is that although timing is tight, especially for businesses with complex operations, it is not impossibly so. Officials in Australia have reported that they are happy with the way their system is working, and that the benefits of the tight time scales far outweigh the costs.

A key point that arose from the consultation process was the view that administration takes too long, and that there is no certainty of when creditors will get their money. That needs to be addressed to reassure the lending community. Our time scales are not unreasonable in the light of experience in Australia. The amendment would extend the period during which an administrator will be required to prepare and send out his or her proposals from 28 days to three months. The 28-day time scale is rightly stringent. The process will be sufficiently flexible, as I have sought to show, not least because we have incorporated sufficient opportunity for that time limit and others to be extended when necessary.

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My hon. Friend the Member for Leigh (Andy Burnham) made a point about information and consultation of employees, which the TUC briefing addressed. Employees are also creditors, and there will be consultation mechanisms in the Bill. However, that is subject to a recently agreed EC directive, on which there will shortly be consultation about implementation. I therefore argue that it is inappropriate to deal with that issue in this insolvency legislation. The issue is, after all, a more general one of employment rights. I am nevertheless aware of my hon. Friend's point.

I hope that I have answered the Committee's concerns and I invite the hon. Member for Eastbourne to withdraw the amendment.